BILL ANALYSIS
AB 2767
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Date of Hearing: May 3, 2004
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Sarah Reyes, Chair
AB 2767 (Richman) - As Introduced: February 20, 2004
SUBJECT : Department of Water Resources: electricity purchases:
contracts.
SUMMARY : Clarifies existing law to authorize the Department of
Water Resources (DWR) to re-negotiate contractual agreements
pertaining to electricity purchase contracts. Specifically,
this bill :
1)Finds and declares that DWR authority under this subdivision
is declaratory of existing law.
2)Clarifies that DWR has the authority to re-negotiate, novate,
or amend electricity purchase contracts to include any
contractual term necessary, appropriate or convenient to
further the purposes of the program.
EXISTING LAW allows DWR to contract with any person, local
publicly owned electric utility, or other entity for the
purchase of power on such terms and for such periods as the
department determines and at such prices the department deems
appropriate taking into account all of the following:
(a) The intent of the program is to
achieve an overall portfolio of contracts for energy
resulting in reliable service at the lowest possible
price per kilowatt hour.
(b) The need to have contract supplies to
fit each aspect of the overall energy load profile.
(c) The desire to secure as much low-cost power
as possible under contract.
(d) The duration and timing of contracts made
available from sellers.
(e) The length of time sellers of electricity
offer to sell such electricity.
AB 2767
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(f) The desire to secure as much firm and
non-firm renewable energy as possible.
FISCAL EFFECT : Unknown.
COMMENTS :
According to the sponsor, existing law should be made clearer
regarding DWR's authority to include certain rights to
re-negotiate long-term energy contracts. Currently, existing
law states, "on or after January 1, 2003, the department shall
not contract under this division for the purchase of electrical
power. This section does not affect the authority of DWR to
administer contracts entered into prior to that date or the
department's authority to sell electricity."
The sponsors believe, and the Attorney General has opined, that
DWR's authority to administer long-term energy contracts
includes certain rights to renegotiate these contracts.
However, the sponsor points out that this authority is not
explicit and the absence of explicit authority has hampered some
re-negotiation efforts. Furthermore, the Attorney General has
issued an opinion on this matter that it only applies on a
case-by-case basis and therefore the sponsor wants to have
express statutory authority to renegotiate these contracts and
eliminate the opportunity for frivolous lawsuits by other
parties.
Possible ramifications of not giving DWR explicit authority to
renegotiate contracts may mean that contracts negotiated after
December 31, 2002 could be challenged. The sponsor believes
that there is a remote possibility that absent this
clarification in statute the $6.3 billion saved as a result of
the renegotiated contracts may be subject to a legal challenge.
This would include renegotiations necessary to conform the
contracts to currently proposed market redesign and any future
market redesign or CPUC decisions affecting the contracts.
Background: DWR began purchasing power for the state after the
investor owned utilities (IOUs) became unable to purchase
wholesale electricity for their customers due to the
deterioration of their creditworthiness as a result of paying
for overpriced power through the now defunct Power Exchange.
The contracts DWR entered into on behalf of IOUs resulted in an
estimated cost of $43 billion to ratepayers and the terms
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extending out to 2012. To date DWR has successfully
renegotiated 33 long-term contracts with 18 counter parties for
a savings of approximately $6.3 billion.
REGISTERED SUPPORT / OPPOSITION :
Support
Department of Water Resources (sponsor)
Opposition
None on file.
Analysis Prepared by : Daniel Kim / U. & C. / (916) 319-2083